Wu Yang v. Dayuan International Development Ltd and Others

HCMP 2143/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2143 OF 2011

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Before: Hon Harris J in Chambers

Date of Hearing: 27 July 2012

Date of Decision: 27 July 2012

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D E C I S I O N

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1.The originating summons issued by the Applicant, who is the registered owner of 30% of the shares of the Company, for an order for production of documents under section 152FA of the Companies Ordinance is listed for substantive hearing on the 23 to 27 August 2012. Today I have heard a case management conference.

2.Put very simply the Applicant seeks to inspect documents of the Company concerning oil exploration and production projects in Africa in which he believes the Company has very valuable and profitable interests.  He believes that by now the Company should have been able to distribute significant dividends to its shareholders.  He is concerned for the reasons explained in his evidence that the certain aspects of the Company’s financial affairs may have not been dealt with properly and wishes to inspect the books and records of the Company identified in his originating summons.

3.The Respondents seek an order for the cross-examination of the Applicant in respect of certain aspects of his evidence, which I shall describe later, which they say go to his good faith.  Their ground for doing so is as follows. Section 152FA(3) provides that the court may make an order for the inspection of documents if the court is satisfied that:

“(a) the application is made in good faith; and

(b) the inspection applied for is for a proper purpose.”

4.These are different and distinct requirements and both need to be satisfied: Wong Kar Gee Mimi v Hung Kin Sang, Raymond [2011] 5 HKLRD 241, paras 11-16.  They will, however, commonly be connected.  If an application is made for a proper purpose it is likely to be made in good faith.  The Respondents challenge the bona fides of the application for 2 reasons.  First, they say that there is good reason to believe that the Applicant has leaked highly sensitive information about the Company’s involvement in projects in Africa to a Mainland business publication, Caixin Century.  This was detrimental, say the Respondents, to the Company’s interests and suggests that the reason for seeking inspection of documents is to put pressure on the Respondents to buy the Applicant’s minority shareholding rather than out of a genuine concern about the conduct of the Company’s affairs.  They also say that there is a risk that if inspection is allowed further damaging leaks will result and this is a matter the court should properly have regard to in deciding whether or not to grant the application.  However, the Respondents have no direct evidence that the Applicant leaked information to Caixin.  They invite the court to draw the inference that he did so from the fact that they say he knew all the relevant information and that they believe that nobody else in possession of such information would have talked to Caixin.  In his reply affirmation the Applicant denies providing information to Caixin.  The Respondents say this is no more than a bare denial.  But if the Applicant did possess the relevant information, which I do not understand him to deny, and did not provide it to Caixin, that is all he would be able to say.

5.The second matter relates to the Applicant’s shareholding in the Company.  It is not disputed that 30% of the issued shares of the Company are registered in his name and are recorded as fully paid up in its books.  It is also not in dispute that the Applicant did not pay for them.  Consideration, he says took the form of assistance in establishing the business of the Company and in particular providing business contacts.  The Respondents say that his evidence about his interest in the Company is, to use the shrill language of Lo Fong Hung in the 6^th paragraph of her second affirmation, a “lie and …. perjury”.  She says this for the following reason.  In paragraph 24 of his first affirmation the Applicant says “I confirm that Bei Ya Holdings was only a nominee shareholder who held the shares for my benefits and it transferred all the shares held by it in Bei Ya to me on about 27^th October 2004”.  Ms Lo says that the Applicant is not the beneficial owner of the shares.  The Applicant accepts in paragraph 4 of his 2^nd affirmation that he holds the shares on behalf of Rockland United Financial Services Limited of which he holds 20%, the remaining 80% being owned by Luo Wei.  He says the Respondents have always known he holds the shares for Rockland, which is presumably why they were able to question the accuracy of paragraph 24 of his first affirmation.  They wish to cross-examine him in relation to this “lie”, which they say is relevant to his bona fides because its calls into question his motive for making the application.  The Respondents do not have any direct evidence that the Applicant does not have an interest in Rockland, although Ms Lo in her affirmation says she has reservations, for reasons given in paragraph 9 of her second affirmation.  However, the fact remains that the Applicant is the registered shareholder of 30% of the Company, those shares have been recorded as paid up and despite Ms Lo attempting to make something out of the fact that no payment has been made for the shares, the Respondents have not explained either why the shares have been recorded as fully paid or why the Company, if it is entitled to, has not sought payment for the shares.

6.The court has a discretion to order deponents to be cross‑examined on their evidence.  Cross-examination will be allowed when the interests of justice require it: Wendy Wenta Seng Yuen v Philip Pak-yiu Yuen [1984] HKLR 431 at 436E.  Mr Mok SC who appeared for the Respondents also drew to my attention the judgment of Lord Greene MR in Re Smith and Fawcett Ltd [1942] 1 Ch 304 at 308 in which he said:

“If it is desired to charge a deponent with having given an account of his motives and his reasons which is not the true account, then the person on whom the burden of proof lies should take the ordinary and obvious course of requiring the deponent to submit himself to cross‑examination”

7.It does not in my view follow that simply because one party challenges the bona fides of another, even in an application such at the present in which a necessary element of the Applicant’s case is that he is acting bona fide, that cross-examination should automatically be allowed.  The court should consider whether there is reason to believe that it will serve any purpose.  This is consistent with the underlying objectives of the Rules of the High Court to be found in O1A r1.  In my view it also needs to be assessed mindful of the fact that section 152FA should provide shareholders with a practical and expeditious means to obtain inspection of documents if they can satisfy the criteria in section 152FA(3): see paragraphs 24 to 26 of Mimi Wong supra.  The court in my view should be slow to allow respondent companies to turn these applications into complex and expensive fights in an attempt to prevent shareholders seeing embarrassing documents.  It follows that in deciding whether or not to allow cross-examination the court must be mindful of the need to ensure that justice is done, but also have regard to the objectives to which I have just referred.  If a respondent is not able to advance any convincing reason why cross-examination is necessary in order fairly to determine the issues it should not be allowed.

8.Turning to the facts of the present case, I am not persuaded by Mr Mok SC that any purpose will be served by allowing cross‑examination concerning the publication of confidential information in Caixin.  The Respondents have no direct evidence that the information came from the Applicant and he has denied it on oath.  As I have already noted the Applicant does not dispute that he was aware of the matters referred to in the article.  No purpose is likely to be served by putting to him the contents of the articles and suggesting to him that he is only person who is likely to have provided the information.

9.The Respondents have asked to be allowed to cross-examine the Applicant, he has contested the application and if I refuse to allow it the Respondents will be able to submit that I can draw the necessary inferences adverse to the Applicant.  As they have sought leave to cross‑examine they will not face the objection to such a submission referred to in Re Smith and Fawcett supra.

10.So far as the question of beneficial ownership of the shares is concerned, I see little purpose being served by cross-examination on paragraph 24 and why it is inaccurate.  The fact is that the Applicant is the registered owner of 30% of the issued share capital of the Company and when the application was launched and his affirmation drafted, the question of precisely what his beneficial interest in the Company was, was not an obviously contentious issue.  Assuming that his purpose for making the application stands up to scrutiny it is unsurprising that he or anybody else with an economic interest in the Company would be interested in the information that he seeks access to.  Whether or not he ultimately owns 6% or 30% of the Company makes little difference and there is no reason to think that Rockland is not aware of the present application and does not support it.  I have difficulty seeing in these circumstances what purpose is likely to be achieved in asking him why he allowed his first affirmation to give the misleading impression that he was the sole beneficial owner of the shares.

11.I, therefore, refuse the application.  I will reserve the costs of the case management conference to the substantive hearing of the originating summons in August.

Mr Frederick Chan, instructed by CWL Partners, for the applicant

Mr Johnny Mok SC and Mr Jason Yu, instructed by Li & Partners, for 1^st to 3^rd respondents